ConsumerWatch: Airlines Aren’t Passing On New Tax Savings

DALLAS (CBS/AP) – The great tax holiday of 2011 for air travelers is just about over.

By Monday, most U.S. airlines had raised fares to reap the benefit of lower federal taxes on airline tickets. A few airlines that were passing the savings on to consumers changed their minds.

Several federal taxes on airline tickets expired over the weekend after Congress failed to pass legislation to keep the Federal Aviation Administration running at full speed.

Raising the fares allows the airlines to charge the consumer the same amount as before, while pocketing money previously collected for the government.

It could turn into a windfall for airlines if the stalemate in Congress drags on. The government estimates that the expiring taxes total $200 million a week. And with jet fuel prices much higher than last year, airlines can use the cash.

As of midday Monday, nearly all large U.S. airlines had raised prices, but fare watchers said Alaska Airlines, Hawaiian Airlines and Spirit Airlines had not. The CEO of Spirit, a small, low-fare outfit that accounts for less than 1 percent of the market, said the industry looked bad.

“The taxes that Spirit and all the other airlines collect don’t belong to us,” Ben Baldanza said. “It’s the taxpayers’ money. It was never Spirit’s money. It would be a grab to take that money.”

Some travel experts called the fare increases a public-relations mistake.

“One of the major airlines could have said, ‘Hey, at least for a week we’re going to give this money back to the consumers,”’ said Rick Seaney, who tracks prices as CEO of FareCompare.com. “I’m surprised no one made promotional hay over this.”

Airlines collect various federal fees, including a 7.5 percent tax on all tickets that expired at midnight Friday night. Once the taxes expired, airlines began raising fares by an equal amount. On some tickets, the expired taxes can top 10 percent of the price.

A spokeswoman for the Air Transport Association, a trade group for major U.S. airlines, said consumers will benefit if the tax savings increase airline profits.

“This short-term additional revenue for airlines, which does not mean a fare increase for consumers, benefits all stakeholders— customers, employees and investors—by temporarily improving tiny industry margins to better cover costs and enable airlines to invest in their product and service,” the spokeswoman, Jean Medina, said in an email.

US Airways and American Airlines were the first to raise fares. They were joined quickly by United, Continental, Delta, Southwest, AirTran, JetBlue and Frontier.

Virgin America, which at first bragged about passing the savings on to consumers, changed its mind by Monday. Spokeswoman Abby Lunardini said it was due to “the dynamic nature of fares,” and said lower prices remained on some flights.

Airlines often adjust fares to match competitors, even down to specific routes. For example, Virgin kept lower fares in Seattle, where it competes with Alaska Airlines, which had not raised fares.

George Hobica, founder of travel website airfarewatchdog.com, said stores don’t raise prices during sales-tax holidays, and neither should airlines.

“It seems predatory,” he said. “I realize the airlines have to make money, but this is kind of a cheap shot. It’s tone-deaf.”

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